GBP/USD risks a deeper retracement – UOB

In opinion of FX Strategists at UOB Group, Cable’s downside momentum could gain further pace in the next weeks.

Key Quotes

24-hour view: “Yesterday, we noted that ‘the sharp and rapid drop is severely oversold’ and held the view that ‘while further weakness is not ruled out, the pace of any further decline is likely to be slower and the next major support at 1.2855 is unlikely to come into the picture’. GBP subsequently extended its decline and while the support at 1.2855 was unthreatened, the swift and strong rebound from a low of 1.2885 was not exactly expected. The rapid bounce appears to have room to extend further but for today, any advance is viewed as part of a higher 1.2950/1.3055 range. In other words, a sustained rise above 1.3055 is not expected.”

Next 1-3 weeks: “Yesterday (08 Sep, spot at 1.3165), we highlighted that GBP ‘is likely to trade with a downward bias towards 1.3100’. We added, ‘only a daily closing below 1.3100 would indicate GBP is ready for a more sustained decline’. Instead of trading with “a downward bias”, GBP nose-dived and closed lower by a whopping -1.47% (1.2980), its biggest 1-day decline since mid-March. While the rapid drop appears to be overdone, strong downward momentum suggests GBP could weaken further towards the critical support at 1.2855. A clear break of this level could potentially lead to further weakness towards 1.2680. On the upside, the ‘strong resistance’ level has moved lower to 1.3120 (from yesterday’s level of 1.3280).”